Why America's Middle-Class Housing Crunch Is Here to Stay | Hacker News Reader

Why America's Middle-Class Housing Crunch Is Here to Stay

businessweek.com

26 pointsnealabq24 comments

He says "As housing prices rise, affordability gets worse when incomes fail to keep pace and interest rates move higher." which is just not accurate. Home prices vary inversely with interest rates. Increased rates would lower home prices. The problem is that would put people under water just like it did in 2008 when they jacked rates up (this triggered the crisis but was by no means all that was involved). Rates are at an all time low which has re-inflated the bubble to near peak levels. With crazy lending practices stopped, most people can't buy at these prices. Interest rates can not be raised at anything but a snails pace without causing another crash. The fed can't even stop buying treasuries or the increased yeild will blow the federal budget (an election is coming too) and kill the stock market. They're backed into a corner and trying to creep out ever so slowly.

I've had many an argument with baby-boomers (who bought into the housing market at dirt cheap prices 30 years ago) regarding this same concept.

I told them when interest rates move up from 3.5%, home prices would decrease proportionately, netting to the same monthly cost.

I WAS WRONG.

I was using logic to describe the illogical. Most people don't view real estate as an investment: to most, it's a place you can call home that makes you feel warm and fuzzy.

So what happened when interest rates went from 3.5% -> 4.5%? -Demand increased: as people on the sidelines got nervous that rates would keep going up, they bit the bullet. -Increased demand caused prices to increase. -The price increase led to further demand from nervous buyers sitting on the sidelines, not wanting to miss out on their chance to own a home. -Finally, in my area anyway, I'm seeing absolutely insane ask prices, but less people are buying. Eventually, stubborn sellers will have to lower their asks to make a deal, but that can take some time.

At a certain point, this doesn't work anymore as people can only stretch themselves so thin, but at least from 2011 (the "bottom") -> 2014, this is my assessment of what happened.

It needs to get up to 6 or 7% and stay there for a while. Shake out the investment buyers and acheive a healthy equilibrium of buyers and sellers.

A historically percentage of recent buyers have been cash buyers who don't care about shifts in interest rates. A historically low proportion have been first-time buyers, who always need loans, and tend to lower down payments that trigger insurance requirements.

The market in middle-class single-family housing purchased through a mortgage has been pretty crap for a long time now.

New business practices could delay prices coming down for a long time. Certain companies are buying up all the housing they can... mostly foreclosures and the like, because they can offer the cash asking price at the end of the auction. But this puts pressure on prices to stay high by reducing supply.

But they've also been buying up real estate on the traditional market too, for rental units.

"That means the main way to build more is to build denser projects, with taller buildings and smaller units. Doing that can be very difficult politically"

I will vote for anyone who runs on a campaign vowing to do this, and you should too. We need more affordable housing and in most urban markets the only direction is up.

> campaign vowing to do this

Well, the whole council of Palo Alto did, and the voters went NIMBY on them

http://nextcity.org/daily/entry/palo-alto-one-ups-san-franci...

I thought the same as well but after some more thought and research I've concluded that cities are inherently doomed. Building cities is hard and the larger the harder. Planning is crucial but risky. Suburbs, by contrast, are cheap and simple. We should instead keep planting new urban areas near existing ones, which are easier to grow. Works well in China but politically unfeasible in America (and perhaps even "un-American").

The last way to ease the affordability crunch is to flip the equation, looking at incomes and not just at housing costs. ... But earnings for low- and middle-income families have been essentially stagnant for years. Declining real wages, for example, were a key reason that earlier this year, not a single home on the market in San Francisco was affordable on a teacher’s salary. This problem has led some cities to consider raising their minimum wage, but that, too, can be a long and often nasty political battle.

Can any of the left-of-center economic folk around explain the logic here? I have heard several plausible arguments for an increased minimum wage, but I haven't heard the one making the case that it will lead to increased wages at the income levels typically required to consider buying a home. If "earnings ... have been essentially stagnant for years", why didn't the last minimum wage bump have such an effect?

Teacher salaries in SF: http://www.sfusd.edu/en/assets/sfusd-staff/contract%20and%20...

More salary info: http://www.sfusd.edu/en/employee-resources/labor-and-union-i...

What does that have to do with the minimum wage?

The quote says not a single home on the market in San Francisco was affordable on a teacher's salary.

I believe they are claiming that when minimum wage goes up even people who make above that get a cost of living bump. Therefore the fact that minimum hasn't moved means the whole stack above it hasn't moved. I know this is true for my mother. She has maxed out the pay scale at her current employer\position. The only way she will get a raise is if she changes employers or there is a change in minimum wage in which case her current employer will bump the scale by the same amount as a cost of living adjustment.

There is no logic to it. If you raise the minimum wage (not necessarily a bad thing, but in terms of the effect on housing affordability...), with housing supply remaining fixed, it would either do nothing (people making FAR more than minimum wage already cannot afford a home) or demand would simply increase and prices would go up further.

There is no logic in politics. What matters is that they come up with a soundbite that is appealing enough to help them get elected.

I believe this Futurama quote about summarizes it:

"Hi! Today some bad things happened. One bad thing was a train got crashed in New Jersey. Wanna see? People won't be late for work though, because the governor lady said, "I'm sending in more trains!" [Another train crashes into the wreckage causing a massive explosion]"

The article mentions Seattle's increasing minimum wage... but a family needs an income of $90K+ to comfortably buy a median priced home here. A high minimum wage won't increase homeownership.

Lower and middle-income families simply cannot afford to buy a house in the city. Homeownership is a luxury, not a right.

There are some weird conclusions about building new housing here. On that graph, both every city above $200 a square foot and every city that built more than 25 units for every 1000 in 1990 are outliers. Every city over $250/sq.ft. has been dreadfully expensive for decades. Every city that overbuilt was extremely bubbly and has had an extreme price drop since.

New houses aren't being built because the vacancy rate is super high (if you include shadow inventory.) Rents are super high because the rental vacancy rate is super low - ex-homeowners have become renters, but shadow inventory hasn't been converted to rentals; it's instead let out in dribs and drabs in order to keep current prices supported.

Prices are destined to net stagnation for the next 3-5 years, by which time they'll have met the trendline.

Saying new houses not being built is the same thing as saying that builders are predicting that they'll see losses if they build. That's the same thing the REITs are saying by ceasing to buy up single-family housing. The current crop of cash buyers are not the funds, but people who have recently sold.

A lot of these articles are reading as if they were mostly sourced from press releases from lobbying groups that are trying to loosen lending standards and/or favorably rezone hot property markets. That would make a lot of large landholders a lot richer.

Trulia, where my 3BD/2BA home is listed as a 2BD/1BA valued at less than 1/2 it's appraised value.

It's hard to trust a study that uses a data like this. Even though my situation is anecodotal, sites like Trulia and Zillow have been criticized for their data accuracy in the past.

>It's hard to trust a study that uses a data like this.

If you're only willing to trust data sets that are 100% clean/accurate, then you aren't going to trust many data sets.

Is there any reason to believe that Trulia has systematically biased or inaccurate data?

I didn't say 100% accurate, but yes there is reason to believe that:

http://www.trulia.com/corp/files/2011/05/trulia_direct_refer... http://info.trulia.com/file.php/5288/Trulia-Estimates-Region...

Appraisals are completely inaccurrate. They take comps from around the area and once over of your place and put a value on it.

I've seen appraisals of the same property vary by as much as +/-25% based on which comps they choose and the appraiser's mood that day.

Going into our last housing bubble, appraisers were not estimating true value of a propery but propelling it ever higher because of short supply. Every new sale lifted the prices higher because every appraisal was based on a previously inflated sale price in the area.

By what measure do you judge a home's value beyond looking at it and comparing it to the neighborhood? Let's compare our anecdotes: In mine the housing price is off by 100% and the home's basic properties are incorrect. In yours the value varies by 25% in some measurements. I would say the appraisals are much more accurate. And when you consider that the appraised value determines the loan amount (and thus whether the home is even sold), I would consider it a much more important metric.

ETA: And if your mention of the bubble is to suggest that my home was appraised at a higher value and is now lower to reflect the true value, I purchased my house a year ago when prices of homes were at some of their lowest points.

Late 2011 through mid 2012 were probably the lowest points.

No, I'm not suggesting your appraiser's valuation is worse than trulia. During the bubble appraisers were valueing homes at whatever the ask was because there was nobody to say any different.

An appraiser is not a highly trained or skilled person. Their value judgement is crucial so it should be a much more involved process than it is with more than one person's opinion reflected.

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